The statutory director of a company has a dual legal relationship with the legal entity. Here we explain how this special relationship is manifested and what the director should be aware of.
Statutory director
The special legal relationship
The director under the articles of association of a private or public limited company (BV or NV) is linked to the company in two ways. On the one hand, the director is appointed by the General Meeting of Shareholders (AGM) and on the other hand, the director has a contractual relationship with the company. This contractual link is usually an employment contract, but it can also be an agreement for services. The legal position of a director under the articles of association is therefore governed by company law and contract law, often in particular labour law. Please note that these particulars do not apply to every director or managing director, but only to those directors who have been appointed as statutory directors by the AGM.
Appointment by the General Assembly
The director is officially appointed as a director under the articles of association by the AGM by means of an appointment resolution. This appointment can take place inside or outside a meeting. Depending on the size and structure of the company, the Works Council and the current board may also have a say in the appointment of a statutory director.
Contractual relationship
The agreement between the company and the director often regulates the conditions surrounding the performance of the function. Although this is often an employment contract, the statutory director does not have the full protection of labour law as a normal employee would have. Another common construction is that the director enters into a contract for services through his own BV (or one-man business).
Consequences of the special legal status
The dual legal relationship of the statutory director means that the statutory director is treated differently from normal employees in a number of matters. This is particularly relevant when it comes to the appointment and dismissal of the director. At these times, both company law and labour law aspects need to be taken into account in order to avoid far-reaching consequences.
Appointment of the statutory director
The new statutory director must be appointed by a resolution of the competent body. In most companies, this will be the AGM, but the articles of association may lay down different procedures. Powers may be granted to the Supervisory Board and/or the Works Council.
Not only must the correct procedure be carefully followed, it must also be properly recorded in the appointment decision. If the appointment is challenged, it will have to be proven that a resolution for appointment was made. It is not sufficient if the person has behaved in good faith as a director (e.g. by representing the company or signing annual accounts). This does not make this person a director under the articles of association within the meaning of the Dutch Civil Code.
For the sake of completeness, we note that the appointment resolution also reaches the intended director, who must accept the appointment. The latter can be done tacitly.
If a director under the articles of association is not validly appointed, the exceptions under labour law do not apply either. This is particularly important when dismissing a director.
Dismissal of the statutory director
The managing director under the articles of association is exempted from parts of labour law, including dismissal law. On the other hand, the requirements of company law for a dismissal decision apply in full. If a valid decision to dismiss is taken, this will also lead to termination of the employment contract (or contract for professional services).
As with the resolution to appoint, the company's articles of association may set out procedures and powers that deviate from the standard arrangements in the law. It is therefore important to pay extra attention to the requirements for a valid resolution to dismiss. Based on the most common situation, the resolution to dismiss will have to be taken by the AGM. This will be explained in more detail.
The AGM must be convened by the competent body, usually the Executive Board and/or the Supervisory Board. The notice must state the items to be discussed and (or shortly after the notice) the explanation of the intended dismissal decision. Please ensure that the necessary formalities are observed, such as observing the correct time periods and the correct location of the AGM.
The explanation of the intended resolution is important because the directors and supervisory directors have an advisory vote in the AGM. If they have not been given the opportunity to actually advise on the proposed resolution, this resolution can be annulled.
The dismissal decision can also be taken outside a meeting if all persons entitled to attend the meeting have agreed to it. In this case, too, the right of advice of the managing and supervisory directors must be observed.
If the dismissal decision does not comply with all legal requirements and requirements under the articles of association, there is always the risk that the decision will be void or voidable. If, on the other hand, the company has properly complied with all formalities and requirements, a dismissal decision is not or very difficult to challenge.
Particulars of the statutory director
Although the preventive dismissal test does not apply to the termination of the employment contract of a managing director under the articles of association, there must be reasonable grounds for dismissal. Unfortunately, this is quickly assumed if the AGM has taken a valid dismissal decision, so the director under the articles of association will have to protect himself in other ways. This protection can be provided, for example, by agreeing to a long period of notice (one year is not unusual) or by stipulating a generous redundancy scheme in advance.
The director under the articles of association does enjoy the protection of the prohibitions on giving notice (such as during illness). Although the director under the articles of association may be dismissed from his or her position under company law, the employment contract will continue to exist.
Directors come in many shapes and sizes. From the managing director of an SME to a director appointed within a large group at one of its many operating companies. With every director, care must be taken due to the complexity of the double legal status.
Regardless of whether you are about to be appointed, a resignation has been announced or you, as a shareholder, are confronted with a change of managing director under the articles of association, it is wise to be assisted at these crucial moments. Our specialists have extensive experience in advising and litigating about statutory directors.